Office of the Treasurer and Tax Collector : financial statements audit of the city investment pool

City and County of San Francisco

OFFICE OF THE TREASURER
AND TAX COLLECTOR:

Financial Statement Audit of the

City Investment Pool

July 1, 2008, through June 30, 2009

GOVERNMENT
DOCUMENTS DEPT

FEB 1 8 ZOlO

SAN FRANCISCO
PUBLIC LIBRARY

February 17, 2010

CONTROLLER’S OFFICE
CITY SERVICES AUDITOR

The City Services Auditor was created within the Controller’s Office through an amendment to the
City Charter that was approved by voters in November 2003. Under Appendix F to the City Charter,
the City Services Auditor has broad authority for:

• Reporting on the level and effectiveness of San Francisco’s public services and
benchmarking the city to other public agencies and jurisdictions.

• Conducting financial and performance audits of city departments, contractors, and functions
to assess efficiency and effectiveness of processes and services.

• Operating a whistleblower hotline and website and investigating reports of waste, fraud, and
abuse of city resources.

• Ensuring the financial integrity and improving the overall performance and efficiency of city
government.

The audits unit conducts financial audits, attestation engagements, and performance audits. Financial
audits address the financial integrity of both city departments and contractors and provide reasonable
assurance about whether financial statements are presented fairly in all material aspects in
conformity with generally accepted accounting principles. Attestation engagements examine, review,
or perform procedures on a broad range of subjects such as internal controls; compliance with
requirements of specified laws, regulations, rules, contracts, or grants; and the reliability of
performance measures. Performance audits focus primarily on assessment of city services and
processes, providing recommendations to improve department operations.

We conduct our audits in accordance with the Government Auditing Standards published by the U.S.
Government Accountability Office (GAO). These standards require:

• Independence of audit staff and the audit organization.

• Objectivity of the auditors performing the work.

• Competent staff, including continuing professional education.

• Quality control procedures to provide reasonable assurance of compliance with the auditing

standards.

Audit Team: Elisa Sullivan, Audit Manager

3 1223 08679 5227

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE CONTROLLER

Ben Rosenfield
Controller

Monique Zmuda
Deputy Controller

February 17, 2010

Jose Cisneros, Treasurer

Office of the Treasurer and Tax Collector

City Hall, Room 140

1 Dr. Carlton B. Goodlett Place

San Francisco, CA 94102-4638

Dear Mr. Cisneros:

The Controller’s Office, City Services Auditor, presents the financial audit report of the
Statement of Net Assets and Statement of Changes in Net Assets of the City and County of San
Francisco (City) Investment Pool (Pool) held by the Office of the Treasurer and Tax Collector
(Treasurer) as of June 30, 2009. These basic financial statements present the total cash and
investments, and related activity under the control and accountability of the City’s Treasurer.

This audit was performed under contract by Macias Gini & O’Connell LLP. For this contract, the
City Services Auditor Division performed the department liaison duties of project management
and contractor invoice approval.

Based on this audit, Macias Gini & O’Connell LLP found that the basic financial statements
referred to above present fairly, in all material respects, the financial position of the City’s Pool
as of June 30, 2009, and the changes in financial position for the year then ended in conformity
with accounting principles generally accepted in the United States of America. Further, the
Treasurer complied with the investment requirements in the California Government Code,
Sections 27130 through 27137, and with the City’s investment policy.

Respectfully submitted.

Tonia Lediju
Director of Audits

cc: Mayor

Board of Supervisors
Civil Grand Jury
Budget Analyst
Public Library

Page intentionally left blank.

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND
TAX COLLECTOR INVESTMENT POOL

Financial Statements with
Independent Auditor’s Reports

For the Year Ended June 30, 2009

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Financial Statements
For the Year Ended June 30, 2009

Table of Contents

Page

Independent Auditor’s Report 1

Statement of Net Assets 3

Statement of Changes in Net 4

Notes to the Financial Statements 5

Independent Auditor’s Report on Internal Control over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial

Statements Performed in Accordance with Government Auditing Standards 1 1

Independent Accountant’s Report on Agreed-Upon Procedures 13

2121 N. California Blvd., Suite 7S0
Walnut Creek, CA 94596
925.274.0190

Macias Gini 5t O'Connell llp

Certified Public Accountants & Management Consultants

The Honorable Mayor Gavin Newsom

The Honorable Members of the Board of Supervisors

City and County of San Francisco

Independent Auditor’s Report

We have audited the accompanying financial statements of the Investment Pool administered by the
Office of the Treasurer and Tax Collector (Treasury), as of and for the year ended June 30, 2009, as listed
in the table of contents. These financial statements are the responsibility of the Treasury’s management.
Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Treasury’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 1, the financial statements present only the Treasury and do not purport to, and do
not, present fairly the financial position of the City and County of San Francisco, California, as of
June 30, 2009, and the changes in its financial position for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Treasury as of June 30, 2009, and the changes in its financial position for the year
then ended in conformity with accounting principles generally accepted in the United States of America.

The Treasury has not presented a management’s discussion and analysis that accounting principles
generally accepted in the United States has determined is necessary to supplement, although not required
to be part of, the financial statements.

An Indi

ident Member of the BOO Seldi

Ain,

In accordance with Government Auditing Standards, we have also issued our report dated
December 23, 2009, on our consideration of the Treasury’s internal control over financial reporting and
on our tests of its compliance with certain provisions of laws, regulations, contracts, and agreements and
other matters. The purpose of that report is to describe the scope of our testing of internal control over
financial reporting and compliance and the results of that testing, and not to provide an opinion on the
internal control over financial reporting or on compliance. That report is an integral part of an audit
performed in accordance with Government Auditing Standards and should be considered in assessing the
results of our audit.

Certified Public Accountants
Walnut Creek, California

December 23, 2009

2

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Statement of Net Assets
June 30, 2009

Assets:

Cash

Investments:

U.S. Treasury securities:

U.S. Treasury notes
U.S. Treasury bills

U.S. Agencies under U.S. government receivership:

Federal National Mortgage Association Notes and Bonds
Federal Home Loan Mortgage Corporation Discount Notes
Federal Home Loan Mortgage Corporation Notes
U.S. Agencies not under U.S. government receivership:
Federal Home Loan Bank Notes
Federal Home Loan Bank Floaters
Federal Farm Credit Bank Bonds
Federal Farm Credit Bank Floaters
Temporary Liquidity Guarantee Program Notes
Temporary Liquidity Guarantee Program Floaters
With banks and thrifts:

Collateralized Certificates of Deposit
Public Time Deposits

$ 80,081,516

294,189,536

362,845,323

451,665,109

19,899,911

403,445,920

174,965,769

179,637,031

90,281,365

50,046,875

504,101,094

50,460,938

425,000,000

15,300,000

Total investments

3,021,838,871

Interest receivable

10,822,908

Total assets

3,112,743,295

Liabilities:

Outstanding checks 1 00,9 1 0,349

Distributions payable 10,292,582

Total liabilities

111,202,931

Total net assets held in trust

$ 3,001,540,364

The accompanying notes are an integral part of these financial statements.

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Statement of Changes in Net Assets
For the Year Ended June 30, 2009

Additions:

Additions to investment pool

Investment income:

Net increase in fair value of investments

Interest

$ 54,358,762,873

5,756,776

79,157,629

Net increase resulting from investment income

84,914,405

Total additions

54,443,677,278

Deductions:

Distributions from investment pool

Investment income distributions to participants

Administrative expenses

54,512,420,968

81,377,658

6,119,352

Total deductions

54,599,917,978

Net change in net assets

Net assets held in trust, beginning of year

(156,240,700)

3,157,781.064

Net assets held in trust, end of year

$ 3,001,540,364

The accompanying notes are an integral part of these financial statements.

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Notes to the Financial Statements
For the Year Ended June 30, 2009

Note I - Summary of Significant Accounting Policies

The City and County of San Francisco (City) Investment Pool (Pool) is a local government investment
pool with approximately $3.0 billion in net assets as of June 30, 2009. As the banker, tax collector,
collection agent, and investment officer for the City, the Office of the Treasurer and Tax Collector
(Treasurer) manages the Pool on behalf of most funds of the City and external participants. Investments
made by the Treasurer are regulated by the California Government Code and by the City’s investment
policy approved annually by the City’s Treasury Oversight Committee.

These basic financial statements present only the cash on hand, cash in bank, investments, and related
activity under the control and accountability of the Treasurer of the City. The financial statements are not
intended to present fairly the financial position and results of operations of the City.

Measurement Focus and Basis of Accounting

The Statement of Net Assets and the Statement of Changes in Net Assets are prepared using the economic
resources measurement focus and the accrual basis of accounting. Earnings on investments are recognized
as revenue in the period in which they are earned and administrative costs are recognized as expense when
incurred, regardless of the timing of cash flows. In accordance with generally accepted accounting
principles (GAAP), the Treasurer records investment purchases and sales on the trade date. Pool
participants’ cash balances and withdrawals are based on book value (deposits, plus distributed
investment income, and realized gains and losses).

Investment Pool Participation

The Treasurer’s Pool includes pooled deposits and investments and dedicated investment funds. The
dedicated investment funds represent restricted funds and relate to bond issuances of the City’s enterprise
funds or agency funds. The Pool also includes both voluntary and involuntary participation from entities
that are not part of the City’s financial reporting entity. The State of California statutes require certain
special districts and other governmental entities to maintain their cash surplus with the Treasurer. The San
Francisco Unified School District (school district), the San Francisco Community College District
(community college district), and the City are involuntary participants in the City’s Pool. As of
June 30, 2009, involuntary participants accounted for approximately 95.4 percent of the Pool. Voluntary
participants accounted for 4.6 percent of the Pool.

Further, the school district, community college district, the trial courts of the State of California and the
Transbay Joint Powers Authority are external participants of the City’s Pool. At June 30, 2009,
$569. 9 million was held on behalf of these external participants. The total percentage share of the City’s
Pool that relates to these four external participants is 19.0 percent. Internal participants accounted for
81.0 percent of the Pool. During the fiscal year ended June 30 2009, the Treasurer has not entered into any
legally binding guarantees to support the participant equity in the Pool. Further, the Pool is not registered
with the SEC as an investment company.

Investment Valuations

Investments are carried at fair value, except for certain non-negotiable investments that are reported at
cost because they are not transferable and have terms that are not affected by changes in market interest
rates, such as collateralized certificates of deposits and public time deposits. The fair value of investments
is determined monthly and is based on current market prices. The fair value of participants’ position in the
Pool approximates the value of the Pool shares. The method used to determine the value of participants’
equity is based on the book value of the participants’ percentage participation. In the event that a certain
fund overdraws its share of pooled cash, the overdraft is covered by the General Fund and a payable to the
General Fund is established in the City’s basic financial statements.

5

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Notes to the Financial Statements (Continued)

For the Year Ended June 30, 2009

Note 1 - Summary of Significant Accounting Policies (Continued)

Investment Income

Income from pooled investments is allocated at month-end to the individual funds or external participants
based on the fund or participant’s average daily cash balance in relation to the total pooled investments.
Income from dedicated investments is posted directly to funds where the money is originated. City
management has determined that the investment income related to certain funds should be allocated to the
General Fund. On a budget basis, the interest income is recorded in the City’s General Fund. On a
generally accepted accounting principles (GAAP) basis, the income is reported in the fund where the
related investments reside. A transfer is then recorded to transfer an amount equal to the interest earnings
to the General Fund.

It is the City’s policy to charge interest at month-end to those funds that have a negative average daily
cash balance. In certain instances. City management has determined that the interest expense related to the
fund should be allocated to the City’s General Fund. On a budget basis, the interest expense is recorded in
the General Fund. On a GAAP basis, the interest expense is recorded in the fund and then a transfer from
the General Fund for an amount equal to the interest expense is made to the fund.

The types of investments made during the year were substantially the same as those held as of
June 30, 2009. Fair value fluctuates with interest rates and increasing rates could cause fair value to
decline below original cost. The Treasurer believes the liquidity in the portfolio is sufficient to meet cash
flow requirements and to preclude the Treasurer from having to sell investments below original cost for
that puipose. The earned yield, which includes net gains on investments sold, on all investments held by
the Treasurer for the fiscal year ended June 30, 2009, was 2.57 percent.

Investment Withdrawals

In accordance with California Government Code, Section 27136, any requests from agencies to withdraw
funds from the investment pool for purposes other than cash flow, such as for external investing, is
subject to the consent of the Treasurer. Those requests are subject to the Treasurer’s consideration of the
stability and predictability of the pooled investment fund, or the adverse effect on the interests of the other
depositors in the pooled fund. Withdrawals are at the value shown on the Office of the Controller’s books
as of the date of withdrawal.

Interest Receivable

Receivables on the statement of net assets consist of interest accrued on investments.

Payables

The payables consist of outstanding checks and distributions payable.

Estimates

The preparation of the basie financial statements in confonnity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from the estimates.

6

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTIV1ENT POOL

Notes to the Financial Statements (Continued)

For the Year Ended June 30, 2009

Note 2 - Investment Policy

The City’s investment policy addresses the soundness of financial institutions in which the City will
deposit funds, types of investment instruments as permitted by the California Government Code, and the
percentage of the portfolio which may be invested in certain instruments with longer terms to maturity.
The objectives of the policy, in order of priority, are safety, liquidity, and yield. The City has established a
Treasury Oversight Committee as defined in the City Administrative Code section 10.80-3, comprised of
various City officials, representatives of agencies with large cash balances, and members of the public, to
monitor and review the management of public funds maintained in the investment pool in accordance with
Sections 27130 to 27137 of the California Government Code. The Treasurer prepares and submits a
comprehensive investment report to the Mayor, the Board of Supervisors, members of the Treasury
Oversight Committee, and the Pool participants every month. The report covers the type of investments in
the Pool, maturity dates, par value, actual cost, and fair value.

The City’s investment policy also limits the purchase of negotiable certificates of deposit to the five
largest domestic commercial banks that have demonstrated profitability in their most recent audited
financial statements at the time of purchase. In addition, the investment policy requires that public time
deposits be made only at approved financial institutions with at least one full service branch within the
geographical boundaries of the City, and that the deposits yield a minimum of 0.125 percent higher than
equal maturity U.S. Treasury instruments except in special circumstances specifically authorized by the
Treasurer. The investment policy requires deposits in exeess of the Federal Deposit Insurance Corporation
(FDIC) deposit insurance limit to be fully collateralized with 1 10% of the type of collateral authorized in
California Government Code, Section 53651 (a) through (i). The eurrent FDIC insuranee limit is
$250,000. The investment policy also requires that commercial bank deposits be made on a competitive
basis with risk exposure based on financial statements and related information gathered on each
individual bank.

The table on the following page identifies the investment types that are authorized by the City’s
investment policy. The table also identifies certain provisions of the City’s investment policy that address
interest rate risk and concentration of credit risk. Although the California Government Code does not
limit the amount of City funds that may be invested in federal agency instruments, the City’s investment
policy requires that investments in federal agencies should not exceed 60 percent of the total portfolio at
the time of purehase. The investment policy also limits the maximum maturity of each type of agency
instrument and does not permit the investment in medium term corporate notes. Investments held by the
Treasurer during the year did not include repurchase agreements or reverse repurchase agreements.

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Notes to the Financial Statements (Continued)

For the Year Ended June 30, 2009

Note 2 - Investment Policy (Continued)

Table 1 - Types of Investments Authorized by the City’s Investment Policy

Authorized Investment Type

Maximum

Maturity

Maximum
Percentage
of Portfolio

Maximum
Investment
in One Issuer

U.S. Treasury:

Bills

5 years

None

None

Notes

5 years

None

None

Bonds

5 years

None

None

U.S. Agency Securities (all):

5 years

60% *

n/a

Federal National Mortgage Association (Fannie Mae or FNMA)

5 years

n/a

30% *

Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC)

5 years

n/a

30% *

Federal Home Loan Bank (FHLB.)

270 days *

n/a

30% *

Federal Farm Credit Bank (FFCB.)

270 days *

n/a

30% *

Federal Agricultural Mortgage Association (Farmer Mac)

270 days *

n/a

10% *

Resolution Trust Funding Corporation (RTC)

270 days *

n/a

5%*

Tennessee Valley Authority (TVA)

270 days *

n/a

10%*

Commercial Paper

270 days

25%

10% *

Bankers Acceptances

1 80 days

40%

30% *

Temporary Liquidity Guarantee Program (TLGP)

5 years

30%

None

State and Local Government Agencies indebtedness

5 years

20%

None

Repurchase Agreements

30 days *

None

$75 million

Reverse Repurchase Agreements

45 days *

20%

$75 million

State of California Local Agency Investment Fund (LAIF)

n/a

Statutory

None

Bank and Thrift:

Public Time Deposits

5 years

None

None

Public Demand Accounts

5 years

None

None

■Negotiable Certificates of Deposit

5 years

30%

None

* Represents restriction on which the City’s investment policy is more restrictive than the California Government Code.

Note 3 - Investments
Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial
institution, the City will not be able to recover its deposits or will not be able to recover collateral
securities that are in the possession of an outside party. The custodial credit risk for investments is the risk
that, in the event of the failure of the counterparty to a transaction, a government will not be able to
recover the value of its investment or collateral securities that are in the possession of another party. The
California Government Code and the City’s investment policy do not contain legal or policy requirements
that would limit the exposure to custodial credit risk for deposits or investments; however, it is the
practice of the Treasurer that all investments are insured, registered, or held by the Treasurer’s custodial
agent in the City’s name.

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Notes to the Financial Statements (Continued)

For the Year Ended June 30, 2009

Note 3 - Investments (Continued)

The California Government Code requires California banks and savings and loan associations to secure
the City’s deposits not covered by federal deposit insurance by pledging government securities as
collateral. The fair value of pledged securities must equal at least 110 percent of the type of collateral
authorized in California Government Code, Section 53651 (a) through (i) of the City’s deposits. The
collateral must be held at the pledging bank’s trust department or another bank, acting as the pledging
bank’s agent, in the City’s name. The investment policy states that mortgage-backed collateral will not be
accepted. At June 30 2009, all of the banks with funds deposited by the Treasurer secured deposits with
sufficient collateral.

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an
investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value
to changes in market interest rates. One of the ways that the Treasurer manages its exposure to interest
rate risk is by purchasing a combination of shorter term and longer terni investments and by timing cash
flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly
over time as necessary to provide the cash flow and liquidity needed for operations. As of June 30, 2009,
the investment pool had a weighted average maturity of 576 and its investment in floating rate securities
was $280.1 million. These securities are tied to the London Interbank Offered Rate (LIBOR) index.

All security transactions including collateral for repurchase agreements entered into by the Treasurer is
conducted on a delivery-versus-payment basis pursuant to approved custodial safekeeping agreements.
Securities are held by a third party custodian designated by the Treasurer and evidenced by safekeeping
receipts. Information about the sensitivity to the fair values of the Treasurer’s investments to market
interest rate fluctuations is provided by the following table, which shows the distribution of the
Treasurer’s investments by maturity.

Table 2 - Types of Investments Authorized by the City’s Investment Policy (in thousands)

Investment Type

U.S. Treasury Bills
U.S. Treasury Notes
Fannie Mae Bonds
Fannie Mae Multi-Step
Fannie Mae Discount Notes
Freddie Mac Bonds
Freddie Mac Discount Notes
FFCB Bonds
FFCB Floater
FHLB Multi-Step
FHLB Discount Notes
FHLB Floater
TLGP Bonds
Collateralized CD
Public Time Deposits

Interest

Rates

Investment maturities (in months)

Maturity Par Value Fair Value Under I 1-6 6-12 12-60

0.13%- 1.50% 7/23/09-1/14/10 S 295,000 S

0.34% -3.86% 7/31/09-5/31/11 355,100

1.23% -3.60% 2/11/11 -5/6/13 370,000

1.25% 11/18/11 29,825

1.21% 8/17/09 50,000

l.97%-3.00% 1/23/12-4/24/14 405,000

0.91% 1/8/10 20,000

1.20% -2.88% 10/13/10- 1/28/14 90,225

0.77% 10/26/09 50,000

0.50% 6/30/10 50,000

0.11% -0.12% 7/7/09-7/8/09 125,000

0.23% - 0.54% 1 1/23/09 - 12/28/OS 179,500

0.77% -2.13% 1/7/11 - 12/26/12 551,000

1.20% -2.52% 9/2/09-4/14/10 425,000

1 .00% - 3.90% 7/16/09 - 1 2/20/1 0 15,300

294,189 S 174,999 S 49,465 S

362,845 - 156,025

372,213
29,806

49,647 - 49,647

403,446
19,900
90,281

50,047 - 50,047

49,969

124,997 124,997

179,637 - 179,637

554,562

425,000 - 325,000

15,300 100 5,100

69,725

25,257

19,900

49,969

100,000

100

181,563

372,213

29,806

403,446

90,281

10,000

Total Investments

S 3,010,950 S 3,021,839 $ 300,096 $ 814,921 $ 264,951 S 1,641,871

CITY AND COUNTY OF SAN FRANCISCO
OFFICE OF THE TREASURER AND TAX COLLECTOR INVESTMENT POOL

Notes to the Financial Statements (Continued)

For the Year Ended June 30, 2009

Note 3 - Investments (Continued)

Credit Risk

Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder
of the investment. This is measured by the assignment of a rating by a nationally recognized statistical
rating organization. Table 3 shows the minimum rating required by the California Government Code and
the City’s investment policy and the actual rating as of June 30, 2009, for each investment type.

Table 3 - Minimum Rating Required by the California
Government Code and Investment Policy

Investment Type

Minimum

Legal Rating

Standard & Poor’s
Rating

Total Investment
Portfolio

U.S. Treasury Bills

N/A

A-1

9.7%

U.S. Treasury Notes

N/A

AAA

12.0%

U.S. Agencies Notes

N/A

AAA

45.3%

TLGP

N/A

AAA

18.4%

Collateralized CDs

N/A

N/A

14.1%

Public Time Deposits

N/A

N/A

0.5%

The City’s investment policy contains no limitations on the amount that can be invested in any one issuer
beyond that stipulated by the California Government Code. U.S. Treasury and Agency securities are not
subject to these single issuer limitations. As shown in Table 3 above, investments in U.S. Agencies that
represent 5 percent or more of the total investments are in the following: FHLMC, FNMA, and FHLB.
These investments represent 14.0 percent, 14.9 percent, and 1 1.7 percent, respectively.

Note 4 - Safekeeping Items

The Treasurer also holds for safekeeping bequests, trust funds, and lease deposits for other City
departments. The bequests and trust funds consist of stocks and debentures. Those instruments are valued
at par, cost, or fair value at the time of donation. The following table summarizes the bequests, tmsts, and
lease deposits held by the Treasurer.

Table 4 - Bequest, Trusts, and Lease Deposits Held by the Treasurer

Safekeeping Items Amount

Bequests and Trusts:

San Francisco General Hospital:

Augusto Brunetti Bequest $ 166

Laguna Honda Hospital:

William L. Lenahan 203,908

Marie Lewis Gift Fund 72,336

Hazel I. Putnam 1,227

Miscellaneous Gift Fund 105,370

Recreation and Park Department:

Gilliland Bequest 182,364

Mildred Marting Bequest 7,182

Department of Human Services:

Mary Arcuri Account 2,353

Federal Home Loan Bequest 392

Total Bequest and Trust Funds 575,298

Lease Deposits 24,298,624

Total Safekeeping Items $ 24,873,922

10

2121 N. California Blvd., Suite 750
Walnut Creek, CA 94S96
92S.274.0I90

Macias Gini 5c O'Connell llp

Certified Public Accountants & Management Consultants

Independent Auditor’s Report on Internal Control over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards

The Honorable Mayor Gavin Newsom

The Honorable Members of the Board of Supervisors

City and County of San Francisco

We have audited the financial statements of the Investment Pool administered by the Office of the
Treasurer and Tax Collector (Treasury) as of and for the year ended June 30, 2009, and have issued our
report thereon dated December 23, 2009. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control over Financial Reporting

In planning and performing our audit, we considered the Treasury’s internal control over financial
reporting as it pertains to the Investment Pool’s activities, as a basis for designing our auditing procedures
for the purpose of expressing our opinion on the financial statements but not for the purpose of expressing
an opinion on the effectiveness of the Treasury’s internal control over financial reporting. Accordingly,
we do not express an opinion on the effectiveness of the Treasury’s internal control over financial
reporting.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent or
detect misstatements on a timely basis. A material weakness is a deficiency or combination of
deficiencies in internal control such that there is a reasonable possibility that a material misstatement of
the Investment Pool’s financial statements will not be prevented, or detected and corrected on a timely
basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the
first paragraph of this section and would not necessarily identify all deficiencies in internal control over
financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not
identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses, as defined above.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Investment Pool’s financial statements are
free of material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and agreements, noncompliance with which could have a direct and material effect
on the determination of financial statement amounts. However, providing an opinion on compliance with
those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.

An Independi

Member of the BOO Seldi

This report is intended solely for the information and use of the Treasury’s management, Treasury
Oversight Committee, the Board of Supervisors, and others within the City, and is not intended to be and
should not be used by anyone other than these speeified parties. However, this report is a matter of publie
reeord and its distribution is not limited.

MfYA

CUUAJi (3 uu?

Certified Publie Aecountants
Walnut Creek, California

Deeember 23, 2009

12

2121 N. California Blvd., Suite 7S0
Walnut Creek. CA 94S96
925.274.0190

Macias Gini 5t O'Connell llp

Certified Public Accountants & Management Consultants

Independent Aecountant’s Report
on Applying Agreed-Upon Proeedures

The Honorable Mayor Gavin Newsom

The Honorable Members of the Board of Supervisors

City and County of San Francisco

We have performed the procedures enumerated below, which were agreed to by the Office of the
Treasurer and Tax Collector (Treasui^) of the City and County of San Francisco (City), solely to assist
the specified parties in evaluating the Treasury’s compliance with the California Government Code
(Code) Sections 27130 through 27137, which addresses requirements of the Treasury Oversight
Committee (Committee), for the year ended June 30, 2009. Treasury’s management and the Committee
are responsible for the Treasury’s compliance with those requirements. This agreed-upon procedures
engagement was conducted in accordance with attestation standards established by the American Institute
of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those
parties specified in this report. Consequently, we make no representation regarding the sufficiency of the
procedures described below either for the purpose for which this report has been requested or for any
other purpose

The procedures performed and our observations and findings are summarized as follows:

1. We obtained a listing of the current members of the Committee to determine whether the
members meet the requirements outlined in Aitiele 6, Section 27132 of the Code.

Finding: No compliance exceptions were noted as a result of our procedures.

2. We obtained confirmations from the Committee members that they are in compliance with
Article 6, Section 27132.1 through 27132.3 of the Code.

Finding: No compliance exceptions were noted as a result of our procedures.

3. We obtained the Investment Policy and verified that it was reviewed by the Committee and
included authorized investments; maximum security term; brokers and dealers selection; limits on
the receipt of gifts; investment report; cost calculation and apportionment policy; deposit terms
and conditions; and funds withdrawal criteria pursuant to Article 6, Section 27133 of the Code.

Finding: No compliance exceptions were noted as a result of our procedures.

4. We verified that City’s funds were used to pay for the costs incurred to comply with the
investment compliance requirements pursuant to Article 6, Section 27135 of the Code.

Finding: No compliance exceptions were noted as a result of our procedures.

13

5. We read the City’s withdrawal poliey and performed tests to verify the Treasury eomplied with
this poliey pursuant to Artiele 6, Section 27136 of the Code. The City’s withdrawal policy as
stated in the Investment Policy is as follows:

The Treasurer will honor all requests to withdraw funds for normal cash flow purposes
that are approved by the San Francisco Controller. Any requests to withdraw funds for
puiposes other than cash flow, such as for external investing, shall be subject to the
consent of the Treasurer. In accordance with California Government Code Sections
27136 et seq. and 27133(h) et seq., such requests for withdrawals must first be made in
writing to the Treasurer. These requests are subject to the Treasurer’s consideration of the
stability and predictability of the Pooled Investment Fund, or the adverse effect on the
interests of the other depositors in the Pooled Investment Fund. Any withdrawal for such
purposes shall be at the value shown on the Controller’s books as of the date of
withdrawal.

We tested 25 withdrawals during the period from July 1, 2008 through June 30, 2009 to
determine the City’s compliance with its withdrawal policy.

Finding; No compliance exceptions were noted as a result of our procedures.

6. We read the Committee’s quarterly minutes to detennine that the Committee was not directing
individual investment decisions, selecting individual investment advisors, brokers or dealers or
impinging on the day-today operations of the City’s Treasury pursuant to Article 6, Section
27137 of the Code.

Finding: No compliance exceptions were noted as a result of our procedures.

7. We read the Investment Policy to verify that it states “the Pooled Investment Fund (Fund) shall be
prudently invested to meet the specific objectives of (1) Safety of Principal, (2) Liquidity,
(3) Yield and (4) Public Trust.’’

Finding: No compliance exceptions were noted as a result of our procedures.

8. We selected the June 2009 investment listing and compared the investments listed to the types of
investments authorized per the Code Sections 53600 et seq.

Finding: No compliance exceptions were noted as a result of our procedures.

9. We recalculated the value of the investments (fair value plus accrued interest) for the investments
listed in the June 30, 2009 investment listing. We then summarized the investments by issuer and
by investment type and computed percentage of each to the total portfolio. We compared those
percentages to the limits stated in the Investment Policy to detennine the City’s compliance. In
addition, we summarized investments by type and days to maturity and compared the number of
days to the limits stated in the Policy to deteiTnine the City’s compliance.

Finding: No compliance exceptions were noted as a result of our procedures.

We were not engaged to, and did not conduct an examination, the objective of which would be the
expression of an opinion on compliance. Accordingly, we do not express such an opinion. Had wc
perfonned additional procedures, other matters might have come to our attention that would have been
reported to you.

14

This report is intended solely for the information of the Treasury’s management, Treasury Oversight
Committee, the Board of Supervisors, and others within the City, and is not intended to be and should not be
used by anyone other than these specified parties.

Certified Public Accountants
Walnut Creek, California

December 23, 2009

15

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